Real Estate Marketing & Beyond
The leading edge of the millennial generation is turning 40 this year (and the oldest baby boomers are 75). The millennial story has not been good. Over the decades, they’ve experienced the Great Recession, massive student loan debt, stagnant wages, rising costs of living, and the Covid-19 pandemic.
Entering the early part of middle age, millennials have outgrown their stereotype of being forever young, unmarried, and financially irresponsible. A recent Harris Poll found 59% of those between the ages of 33 and 40 have found a way to become homeowners. Homeownership is a rite of passage into adulthood for Americans and we can expect the next wave of millennials to continue house hunting this year.
As more millennials approach 40, many are struggling to begin saving for retirement and those who have started saving are now borrowing those funds to make down payments on a home. Many are still working to pay off student debt. Although often characterized as pampered by their parents, millennials have not had an easy go of it financially and house hunting this spring promises to be one of the toughest markets ever.
According to Realtor.com, the spring inventory is about half of what it was last year at this time. That’s about roughly 207,000 fewer homes available to these 30-something adults looking for their first home. Of course, dramatically fewer houses means dramatically higher prices. Along with stagnant wages, millennials now face a housing market with prices 10% higher in January than a year ago according to CoreLogic. That’s on top of price increases averaging 5.7% in 2020, up from 3.8% in 2019.
In comparison, wages and salaries increased 2.6% in 2020 and 2.9% in 2019 according to the Bureau of Labor Statistics. The only light at the end of the home buying tunnel has been very low interest rates. Now, early 2021 may see the end of extraordinarily low interest rates. Along with the affordability gap, millennials will also continue struggling against the tight lending criteria in 2021.
The 2021 spring housing market is almost certain to be the leanest and most competitive ever. Rising mortgage rates are hurting affordability but as we already know, rising mortgage rates have not thrown any cold water on rising home prices. We’ve already seen interest rates creep above the high 2% range and into the low 3% range. April could be a defining moment for 2021 mortgage rates. Rates of vaccinations are finally taking off and the economy is expected to begin heating up with the weather. You can expect interest rates to follow the economy upward. Even the most pessimistic forecasters expect mortgage rates in the mid-3% range by July.
Don’t look for new construction to help buyers find more houses. In January, single-family starts plummeted 12.2% from the prior month to their lowest level since last September (according to Kiplinger’s latest numbers).
Sellers of previously owned homes anticipate a bull market this spring. Houses sold very fast during the slowest part of the year. According to Redfin, more than half (55%) of houses that went on the market in February had pending sales (signed contracts) within two weeks. That high pace of sales happened during some tough winter storms. It is also up significantly over the 44% for the same time in 2020, which was a hot market too.
Spring 2021 does not look promising for millennials. Overall, it’s very much a seller’s real estate market. Anyone planning to buy a home in 2021 needs to be prepared for stiff competition. Tight supply conditions and strong demand have made the housing market highly competitive and fast-paced. Quick sales and multiple offers are the norms for many, if not most, U.S. regions. As we enter spring, although 59% of older millennials have managed to become homeowners, homeownership rates among older millennials are still lower than those of older generations. Of the millennials, about 28% still rent and another 12% are living with their parents or other family members. The supply-and-demand story remains the headline. But there is more to it this spring. Rising interest rates will not make becoming a homeowner any easier.
Please share your thoughts and comments.
Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to [email protected].
